NO FAULT LIABILITY: LET THE PEOPLE DECIDE

The Consumers’ Association of Penang (CAP) strongly believes that consumers will benefit from the NFL just as employees benefit from the Social Security Organisation (SOCSO) which operates on the principle of NFL. If SOCSO has been overwhelming successful for more than four decades why can’t NFL.

CAP disagrees with former Bar Council chairman Kuthubul Zaman Bukhari’s statement that “any move to introduce the No Fault Liability (NFL) scheme will result in motorists having to pay a higher insurance premium”. His assertion is baseless.

Under the current system about 30 per cent of the premium goes to the insurance agents’ commissions and management expenses. If lawyers’ fees are deducted then the victim will receive less than 50 per cent.

A NLF scheme on the other hand does not charge commissions and there are no lawyers’ fees to be paid. Moreover, the NFL administrative expenses would be less than 10 per cent of the amount collected as can be seen from SOCSO’s audited account. Thus 90 per cent of the amount is available to compensate and rehabilitate victims and to provide them with other benefits. Therefore, on the contrary to what Kuthubul claimed, the premium of NFL should be lower.

The Actuarial Society of Malaysia had pointed out that it expected the detariffication of the current fault-based system motor vehicle insurance to cause the premium to increase. It had explained that “upon de-tariffing of the tariff and Motor businesses, the premium rates are expected to go up for Motor businesses which would result in an improvement of the motor loss ratio from the current loss making or break even position”.

The operational cost of NFL would be minimal, essentially eliminating lawyers and touts from the current fault-based system. Moreover, the fault-based system often take years for victims to be compensated as a result of the long and tedious court process. In the meantime, the victim will be burdened with medical and hospitalisation fees besides having other miscellaneous expenditures which can be substantial.

Once the compensation is paid, the lawyers will charge contingency fees amounting to between 20 and 30 per cent of the award. After whatever amount remains is used to cover medical/hospitalisation bills or funeral expenses (if the victim had died), leaving a paltry sum or nothing at all is left for the family. If the victim needs long-term medical treatment/rehabilitation or if he is permanently disabled, then the victim’s family might be driven into debt or financial despair.

In a 2016 report it revealed that touts would lure a relative of an accident victim by ‘giving’ about RM1,000 for expenses then requesting the victim or the next-of-kin to sign documents to commit the case to a legal firm that the touts represent. Once the compensation is obtained, the tout would impose a ‘service charge’ as high as 25 per cent of the amount besides claiming disbursements that he had spent on the case. He may eventually get as much as 40 per cent of the entire insurance claim.

NFL on the contrary ensures that motor accident victims are taken care of financially and receive medical treatment (if need be, for the rest of his life in cases of permanent disability) without having to wait for the outcome of expensive and tedious legal procedures.

NFL is an obvious threat to lawyers as an accident victim does not need them to prove that he is innocent in court to receive compensation for his medical bills.

We are of the opinion that the financial needs of the injured and the dependents of the deceased is of greater importance and has to be addressed soonest possible without having to wait for the outcome of the legal process. Prosecuting and punishing the motorist responsible for the accident can be done under the law governing traffic accidents.

Why did Bank Negara Malaysia (BNM) not recommend the introduction of the NFL scheme to the government instead of detariffication which would only serve to increase the profits of the insurance companies while leaving the exploitation of accident victims untouched?

Letter to the Editor, 6 July 2017

BNM MADE A U-TURN ON NO FAULT LIABILITY SCHEME

Do consumers have to pay more for their motor insurance than what they are paying now when detariffication of motor insurance starts on 1 July?  At least this is what the Consumers’ Association of Penang (CAP) understands because the General Insurance Association of Malaysia (PIAM)’s reply to its FAQ question “What % increase can I expect (CAP’s emphasis) on my motor premium” is:

“It will differ from insurer to insurer. Consumers should shop around for the motor insurance that meets their needs.”

A report quoting the Actuarial Society of Malaysia also concurred that “upon de-tariffing of the tariff and Motor businesses, the premium rates are expected to go up for Motor businesses which would result in an improvement of the motor loss ratio from the current loss making or breakeven position.”

 

Detariffication will inadvertently penalise good drivers by a plethora of factors, particularly their gender, their age, car mileage, and the occupation of the driver.

Instead of detariffication, Bank Negara Malaysia (BNM) should introduce the No Fault Liability (NFL) Scheme which will certainly benefit consumers without burdening them financially yet addressing their problems with current motor insurance scheme.

In fact BNM had identified a list of problems that consumers faced as early 2007 and they included:

·         Inadequate access to third party insurance cover, particularly for old and commercial vehicles.

·         Lengthy claims settlement process.

·         Premiums which have not been revised since 1978.

·         Insurers were reluctant to offer third party insurance cover as premiums are insufficient.

·         Risk of accident victims not receiving adequate or any compensation.

The current fault-based system is based on the principle of Corrective Justice which means that you have to pay if you are at fault. Under this system, not every person injured in a Motor Vehicle Accident (MVA) receives compensation. Moreover, the claimants have to wait a considerable length of time and spend substantial amounts of money before the final determination of their rights and award of compensation, besides having to encounter other problems.

In 2010, the Consumers’ Association of Penang (CAP) then proposed a No Fault Liability (NFL) Scheme to BNM. In fact, the introduction of this NFL scheme in relation to bodily injury and death resulted from MVAs was proposed by the late Tan Sri Dato’ Harun Hashim.

The advantage is that NFL would cost only a fraction of most of the motor insurance policies; Tan Sri Dato’ Harun Hashim proposed an average flat rate of RM50 in 1995 and CAP concurred with him on that rate.

In August 2007, the Attorney General’s Chambers had in fact issued a Preliminary Issue Paper proposing that a No Fault Liability (NFL) Scheme be introduced.

Subsequently CAP submitted a memorandum that NFL be guided by the following principles:

·         Adequate, efficient and quick compensation for victims of MVAs without the need for litigation or dispute resolution on the issue of fault;

·         Rehabilitation and life-long care for victims with serious injuries and support for dependents of deceased victims;

·         Effective accident prevention strategies; and

·         Low administrative costs so that more funds are available for road accident victims.

NFL is nothing new and CAP proposed that Malaysia can emulate the model practiced in Victoria, Australia, and run by the Transport Accident Commission (TAC). NFL has been adopted in the USA, Canada, and Australia.

We have also successfully implemented the Social Security Organisation (SOCSO) scheme since 1971 which is a NFL scheme. This shows that we have the expertise to design and implement such a scheme.

In Malaysia, CAP suggested that the scheme could be funded by the existing insurance third party premiums. CAP reasoned that the legal and administrative fees of insurance companies were expected to be reduced as there is no longer a need to prove fault, and there will no longer be any commissions to agents and the existing premiums may suffice.

Moreover, funding may also be derived from the Social Security Organisation (SOCSO) as it also deals with claims by workers who are injured in the course of their employment, including travelling to and from their work place.

One common concern is accident prevention to make the scheme viable on long-term. As in the case of Victoria, there was a reduction of more than 38,000 claims over a 10-year period, resulting in a saving of more than AUD$ 1 billion. The number of fatalities plunged to 377 in 2006 from 776 in 1987.

The Australian government took pro-active steps to improve road conditions, vehicle safety and hard-hitting and emotive road safety campaigns.

In fact BNM had interest to implement NFL until 2010 when BNM announced the Basic Motor Cover Framework (BMCF) which dealt a knell for the NFL. Then in late April 2017, BNM announced it was liberalising the motor insurance industry so that individual insurers and takaful operators can determine the pricing of motor insurance products.

When the detariffication of motor insurance starts on 1 July, it is going to affect all Malaysians who owns a vehicle. According to the Malaysian Institute of Road Safety Research (MIROS), there were 27.61 million registered vehicles in the country in 2016. The impact of detariffication has on every person who owns a vehicle license is unimaginable.

There had been a general consensus between CAP, BNM and the Attorney General’s Chamber that NFL was good in terms of remedies for accident victims. With the detariffication, it is not going to have significant improvement on the problems that BNM had identified in 2007.

Are the consumers’ problems identified by BNM in 2007 been comprehensively addressed or is BNM merely protecting the interests of the insurance industry when motor insurance is detariffed? CAP reiterates that the NFL should immediately be adopted and implemented for the greater interests of consumers. It is surprising that BNM is persistent in supporting the strong insurance companies but not the people.

Letter to the Editor, 28  June 2017

TELEMARKETING OF INSURANCE PACKAGES

The Consumers’ Association of Penang would like to address the public on the issue of the telemarketing of insurance policies.

Based on the complaints we have received, we find that many consumers get caught in the trap of unknowingly purchasing insurance policies that are being promoted through telemarketing.

In light of these complaints, CAP took up the matter with Bank Negara Malaysia (BNM) to say that we believe that insurance companies should not be allowed to sell insurance policies through telemarketing because of the following reasons:-

 

·         Consumers are being pressured into agreeing to purchase insurance policies

·         Non-committal replies may be taken as a form of agreement

·         Consumers do not receive their policies; therefore do not know that they are “covered”.

However, despite us highlighting our concerns, BNM has clearly stated that the telemarketing of insurance policies is allowed and legal.

BNM has also assured us through our written correspondence that the telemarketing of insurance policies cannot be done on an “anything goes” basis.  There are certain things that telemarketers and insurance companies must adhere to, such as:-

·         A telemarketer while promoting the insurance policy must provide key information which include the product name, features, underwriting insurer, benefits and coverage, method of premium payment and consequences of non-payment

·         The telemarketer cannot assume that the consumer wants to purchase the product being sold.  They must get the consumers express agreement before they can consider an insurance policy sold

·         The insurance company must send the consumer a copy of the Product Disclosure Sheet (PDS) together with the policy contract for insurance products (insurance policy)

·         There is a 15 day “free look” period after the delivery of the policy to return the policy to the insurance company (reject the policy) and get a refund on the premium that had already been paid.  Alert the insurance company if your insurance policy does arrive within the time stipulated by the telemarketer.

Finally, we advise consumers to speak clearly during a telemarketing conversation.  Since no written contract is needed for the sale of an insurance policy, the telemarketing conversation itself becomes the legally binding contract between you and the insurance company.  If a dispute arises between the two parties, the telemarketing conversation is what will be referred to. If you do not want to purchase the insurance policy then say “No”, be assertive.

Letter to the Editor, 17 January 2017

Critical illness insurance policy puzzles consumers

One of the problems with the critical illness policy is that it is being sold by agents who give policyholders the wrong impression that the coverage is wider than it really is. (A critical illness policy is one that pays out a lump sum upon confirmation that the policyholder has been diagnosed with one of the illnesses or conditions covered under the policy)

For example, the agent assures the policyholder that cancer is one of the critical illness covered but does not explain that it has to be the “right “cancer.

Given the popularity of the critical illness policy, Bank Negara should ensure that the consumer is told the truth about the coverage and limitations of the policy.

If consumers already find the life insurance policy difficult to understand, they will be even more baffled with the critical illness policy as it is peppered with medical terms.

Consumers concerned about rising medical bills are easily persuaded to sign up for the critical illness policy as the agents have convinced them that upon diagnosed with any of the 39 (previously 38) critical illness listed in the policy, they will get a pay out. Illnesses covered include stroke, heart attack, kidney failure, cancer, coronary artery disease, just to name the first 5 diseases on the list of 39.  The definitions of the 39 illness covered is standardised  for all insurance companies.

Unfortunately for the consumer, he is probably buying the policy from the agent who only has a very superficial understanding of the policy.

For example stroke is listed as the first critical illness in the list of 39. Thus a policyholder suffering from stroke is covered under the policy unless the stroke falls under the exclusion clause – “Specifically excluded are cerebral symptoms due to transient ischaemic attacks, any reversible ischaemic neurological deficit, vertebrobasilar ischaemia, and cerebral symptoms due to migraine, cerebral injury resulting from trauma or hypoxia & vascular disease affecting the eye or optic nerve or vestibular functions’.

Only a person with a medical background will be able to make sense of it, to the agent and policyholder it is medical gibberish.

Cancer  is listed as number 4 , but a policyholder with breast cancer will not be able to make a claim if the cancer falls under “ductal carcinoma in situ of the breast”, since “ carcinoma in situ” is one of the cancers excluded.
 
In layman’s term “ductal carcinoma in situ of the breast” means that the cancer has remained in the breast ducts and has not spread elsewhere (i.e. in situ).  Depending on the grade of ductal carcinoma in situ of the breast, the patient may end up having a mastectomy and undergoing radiotherapy, but her claim under the policy will be rejected.

It is thus misleading for the agent to tell the prospective policyholder that cancer is covered when there are as many as five conditions where it is excluded. The exclusion clauses are important because they reduce the coverage under the policy and therefore its value.

Thus the present practice of selling critical illness policy is not acceptable. By painting a rosy picture about a policy which they themselves do not fully understand, agents are misleading consumers to expect a pay out when they may not qualify.

To protect consumers and to clear confusion over the coverage and exclusions of a critical illness policy, Bank Negara should:-

• Ensure the use of clear, simple and friendly language so that the policy is easier to understand.

• Provide a toll free number whereby the consumer can get a proper explanation of the policy.  The person manning the phone should have a medical background or is especially trained for the job. The consumer should be directed to call this  number during the  policy’s  ‘free- look“ period.

• Extend the “free-look” period from 15 to 30 days as the policy is more difficult to understand. (During the free-look period the consumer can cancel the policy without being penalised).

Press Statement – 20 October  2011

No-Fault Liability IS the better scheme

The Government has not accepted CAP’s proposal for a No-Fault Liability (NFL) scheme for road accident victims and has instead decided to maintain the present system with some changes.

The new third party motor cover which will be implemented early next year, is also a fault-based liability (FBL) system.  Accident victims will lose out with the rejection of the NFL scheme.

Since the new motor scheme is still based on the principal of FBL, it will not be different from the current scheme as at the end of the day the affected motorist will still:

• bear the risk of his claim being rejected by insurers;
• have to retain lawyers to take the matter to court;
• have to await the court’s decision as to who is at fault, and what amount ought to be paid. 

The FBL scheme also fails to achieve the object of giving maximum benefit to accident victims. Out of every Ringgit of premium collected 30 cents go to commissions and management expenses. If lawyers’ fees are deducted less than 50 cents will go to the victim.  In an NFL scheme, no commissions and lawyers’ fees need to be paid and the administrative expenses would be less than 10% of the amount collected. Thus 90% of the amount is available to compensate and rehabilitate victims and provide them other benefits.

Another disadvantage of continuing with a FBL system is that motor accidents will continue to rise.  The number of motor accidents was 265,416 in 2001, rose to 363,319 in 2007 and reached 414,421 in 2010.

However, in an NFL scheme one of its foremost aims is the prevention of accidents and the promotion of road safety. The NFL scheme puts great emphasis on accident prevention in order to reduce the number of claims.   The implementations of the NFL in Victoria, Australia saw a 29% drop in road fatalities between 2000 and 2009.

If we can reduce road fatalities, this will itself lead to reduction in costs to the courts, in terms of manpower and time when the many road accident cases are being heard. According to the latest statistics available, there were approximately 11,890 insurance claims pending in the Magistrates Courts throughout Malaysia  in July 2006,.   As of June 2006, there were about 32,267 insurance claims pending in Session Courts. Claims for compensation arising out of road accident ranked the second highest amongst the total number of civil cases filed during the same period. By switching to NFL, the courts will be freed to hear non-accident cases.

Thus the NFL is a better scheme for road accident victims. The reasons given by Bank Negara Malaysia (BNM) as to why the NFL could not be implemented are not convincing.

Firstly, BNM claims that it is the general public which wants to maintain the existing FBL system. However certain vested groups lobbying for the maintenance of the FBL system can in no way be construed as “public” consensus.  Had the public been given sufficient information on the merits of the NFL schemes compared to the existing FBL system, they would have chosen NFL system.

When the Attorney General Chambers proposed a NFL scheme in August 2007 and had consultation with all interested parties including NGOs, it must have been convinced that the current FBL scheme is not benefiting the victims of road accidents.

When BNM also organized a consultation in 2007 and brought experts from countries practicing the NFL scheme to explain how the scheme is carried out and the problems faced, it also must have believed in the merits of NFL. Thus we do not understand the turn around by BNM and the rejection of the NFL.  

The second reason is this: The NFL could not be implemented because a majority held the view that putting a limit on the amount of compensation for injuries suffered is a violation of a person’s constitutional rights.

This view is mistaken as there is no constitutional right to unlimited damages. BNM had at one time suggested a RM2 million limit on the amount of compensation for injuries, which is an acceptable figure. The sum that an accident victim can successfully claim for general damages for pain and suffering in the Malaysian court will depend on case law and the Civil Law Act 1956, which itself was amended to limit the damages recoverable in fatal accident cases.

The third reason given is this: The NFL scheme would need a strong complementary infrastructural support (e.g. fraud prevention and establishment of rehabilitation centres.) for it to work. Since money and time would be needed to move to the NFL scheme, it was rejected.

The NFL is not expected to be implemented immediately.  A committee of experts would have to be appointed to plan in detail the establishment of the scheme. Complementary infrastructural support will grow and develop along with the expansion of the NFL.  As we have emphasized to BNM before, SOCSO is a good example of a NFL scheme which is viable and working well.  SOCSO today is a far cry from SOCSO of the early 1980s when CAP highlighted its shortcomings.  So why cannot we have a similar scheme for road accident victims?

The implementation of the NFL scheme would take time, maybe a year or two but it is worth the wait because accident victims will benefit from it.  It is unfortunate for them that this will not be happening.

The main issues and problems with the current FBL system cannot be solved by the new third party motor cover but only by the introduction of NFL cover

CAP reaffirms its stand that the new FBL based scheme will not benefit accident victims and should be scrapped. Government must put the interest of road accident victims above that of parties which push for a  FBL scheme in order that they may continue to profit from it.

Press Statement – 15  September  2011